THE Philippine government raised ¥55 billion (US$500 million or about P24.2 billion) in its sale of 3-year zero-coupon Samurai bonds, marking its successful return to the said market after more than a year of hiatus.
This was also the first-ever zero-coupon bond transaction issued in the Samurai bond market, the Bureau of the Treasury said. This transaction also came more than a year after the Philippine government successfully issued zero-coupon euro-denominated bonds in February 2020.
The new 3-year Samurai tranche was priced 21 basis points above the benchmark, the tightest spread the Philippine government has achieved so far since its return to the market back in 2018.
Initial target size for the 3-year Samurai bonds was around ¥30 billion, but this was later on upsized to ¥55 billion on the back of strong investor demand, paving the way for the deal to capture a new investor base for the Philippines.
In a statement on Tuesday, National Treasurer Rosalia V. de Leon said “the landmark transaction highlights the government’s capability to respond to the challenging times with creative solutions to free up fiscal space to augment the national government’s Covid-19 response.”
Investor confidence—Dominguez
Finance Secretary Carlos G. Dominguez III said the country’s successful return to the Japanese bond market “at this precarious time underlines continued investor confidence in our economy brought about by its strong fiscal position and prudent management that augurs well for a robust and sustainable recovery from the economic turmoil brought by the Covid-19 pandemic.”
“This bond offering brings to light the government’s relentless drive to generate sufficient resources to fund its Covid-19 response and other priority programs that are meant to return the country soon enough to the path of high and inclusive growth,” he added.
Bond ratings assigned to the Philippines’s Samurai bond offering were Baa2 from Moodys, BBB+ from S&P and A- from Japanese Credit Rating Agency.
SMBC Nikko Securities Inc. acted as sole Lead Manager and Book Runner for the deal.
The settlement date for the Samurai bonds is on April 13 this year while its maturity date is on April 12, 2024.
The last time that the Philippine government returned to the Samurai bond market was in August 2019, when it raised ¥92 billion or about P44.3 billion from its sale of the debt papers across four tenors.
Last year, the Philippine government shelved its plans to issue Samurai bonds and renminbi-denominated Panda bonds as the Bangko Sentral ng Pilipinas recently approved a P540-billion advance credit to help the government cover a budget deficit that swelled on the impact of the Covid-19 pandemic.
Credit ratings
International credit watchers rated the country’s most recent bond issuance positively, as the borrowings are intended for budgetary support.
After the Philippine government announced that it has issued a 55-billion yen samurai bond issuance on Tuesday, credit watchers Moody’s Investors Service and S&P Global Ratings both issued statements assigning ratings to the country’s latest borrowing.
Moody’s assigned a senior unsecured rating of Baa2 to the Japanese yen-denominated bond offering by the Government of the Philippines.
The credit watcher said their rating mirrors the Government of the Philippines’s issuer rating of Baa2, and that the rating was based on the terms and conditions that the proceeds from the bonds are intended for general purposes, including budgetary support and repayment of a portion of maturing government borrowings.
On a separate note, S&P assigned its ‘BBB+’ long-term foreign currency issue rating to the proposed benchmark-sized Japanese yen-denominated senior unsecured notes.
Because the ratings on the bond issuance largely depend on the sovereign rating, Moody’s said the factors that could lead to an upgrade or downgrade of the rating hinge on the Philippines’s ability to maintain its rating.
“Moody’s would consider upgrading the Philippines’s sovereign rating upon evidence of a more rapid reversal of the deterioration in fiscal and debt metrics stemming from the coronavirus shock. This would likely entail a sustained restoration of economic growth to rates similar to those recorded prior to the outbreak. Together, a resumption of sustained high growth and rapid restoration of fiscal strength would denote particularly effective macroeconomic and fiscal policy,” Moody’s said.
“Factors that would prompt a downgrade of the Philippines’s sovereign rating include the emergence of macroeconomic instability that would lead to a greater deterioration in fiscal and government debt metrics than Moody’s currently expects and/or an erosion of the country’s external payments position. The reversal of reforms that have supported prior gains in economic and fiscal strength would also likely lead to a downgrade. A material deterioration of institutions and governance strength, with signs of erosion in the quality of legislative and executive institutions, would also be negative,” it added.
Just earlier this week, Moody’s issued a warning on the implications of the rising Covid cases in the country and the renewed lockdowns in some parts of the Philippines.
The credit watcher said the spike in cases is a “credit negative” for the Philippine economy.
Credit negative for sovereigns usually means a further deterioration of these conditions may lead to a downgrade in the country’s current credit standing.
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